5. The lease versus purchase analysis Part 2 Which Is Better: To Lease or To Buy? A car buyer has two financing alternatives to lease or to purchase. It is important to evaluate all the options and analyze the consequences of lease versus purchase decision. The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice How should a tease-versus purchase analysis be conducted? How can this worksheet be applied to help you or someone else make their financing decision? Consider the following scenario: Should Mai Lease or Purchase? Mais considering the purchase of a Ford F-150 Pickup and has negotiated a final price of $27,690. She's trying to decide whether to lease or purchase the vehicle If she leases, she'll have to pay a $500 security depout, a capital cost reduction (down payment) equal to 10% of the vehicles cost, and monthly payments of $375 over the four year term of the dosed-end lease. The truck will have a residual value of 511,076 On the other hand, if she buys the truck, she'll have to make a 10% down payment, pay sales tax equal to of the vehicle's pice, and make monthly payments of $563 on a four-year loan that charges 4% interest Be aware that funds used as down payments and security deposits incur an opportunity cost of 4%, as they could have earned interest for Mall over the period of the lease of loan Use the automobdelave versus purchase analysis worksheet that follows to determine the total cost of both the leave and the purchase and then recommend the best strategy for Mal. To complete the worksheet, enter the appropriate values in the corresponding blanks (Note: Round each Use the automobile lease versus-purchase analysis worksheet that follows to determine the total cost of both the lease and the purchase and then recommend the best strategy for Mal. To complete the worksheet, enter the appropriate values in their corresponding blanks. (Note: Round each value to the nearest whole dollar) AUTOMOBILE LEASE VERSUS PURCHASE ANALYSIS Amount (5) LEASE Item Description Initial Payment 13 Capital Cost Reduction 1b. Security Deposit 10 Total Initial Payment 2 Number of Months in Lease 3 Monthly Lease Payment 4 Total Payments over Lease Term 5 Opportunity Cost of Initial Payment 6 Estimated End of Term Charges 7 Total Cost of Leasing PURCHASE Purchase Price 9 Down Payment 10 Sales Tax on Purchase 11 Monthly Loan Payment 12 Total Payments over Term of loan 13 Opportunity Cost of Down Payment of loan 0.00 IL 2. 4. 6. 0.00 Ch 05: Assignment - Making Automobile and Housing Decisions TULSI ma rayillett Number of Months in Lease 3 Monthly Lease Payment Total Payments over Lease Term 5. Opportunity Cost of Initial Payment Estimated End-of-Term Charges 7 Total Cost of Leasing PURCHASE Purchase Price Down Payment Sales Tax on Purchase Monthly Loan Payment Total Payments over Term of Loon Opportunity Cost of Down Payment Estimated Vehicle Value at End of loan 15. Total Cost of Purchase 8 9 10. 11 12 13 14 Based on this analysis, Mal should Use the lease to purchase the truck, because its total cost is less than the total cost of a loan transaction Use the loan to purchase the truck, because its total cost is less than the total cost of a lease transaction Use the lease to purchase the truck, because its total cost is greater than the total cost of a purchase transaction